Why Britain’s Warren Buffett owns these two FTSE 100 stocks

Nick Train is one of the UK’s most popular fund managers. Here’s a look at two of his top holdings.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Fund manager Nick Train is often referred to as ‘Britain’s Warren Buffett.’ He adopts a similar investment strategy, choosing to invest in a concentrated portfolio of high-conviction holdings. He focuses on world-class companies with sustainable competitive advantages, holding them for the long term, and this strategy has enabled the portfolio manager to build up an enviable track record.

Indeed, The Lindsell Train UK Equity portfolio, which he co-manages, returned an impressive 124% over the five years to the end of July, more than doubling the FTSE 100 total return of 58%.

Today, I’m looking at two key Train holdings and explaining why Train sees appeal in these stocks.

London Stock Exchange Group 

Train has significant exposure to the financials sector, and looks to invest in companies that will benefit from rising share prices over time. As a result, the portfolio manager has a sizeable holding in London Stock Exchange Group (LSE: LSE), as he anticipates that global stock markets will continue to rise over the long term.

A glance at London Stock Exchange’s financials reveals that the company is in good health financially. Revenue has more than doubled over the last five years, from £815m to £1,657m, and City analysts expect a further 11% rise for FY2017. The company consistently generates strong operating margins, and profitability also appears to be trending in the right direction, with analysts forecasting the group to generate earnings per share of 149p this year, up from 125p last year.

As a result, the stock doesn’t trade cheaply, and at the current share price trades on a forward looking P/E ratio of 26.6. The dividend yield is 1.1%. While I share Nick Train’s bullish long-term stance on London Stock Exchange, I’d prefer to buy the stock at a slightly lower valuation. The shares have had an incredible run over the last five years, rising almost 350%, so for now I’ll keep the company on my watch list and monitor for a pullback.

Schroders

Another financial stock that Train has considerable exposure to is FTSE 100-listed investment manager Schroders (LSE: SDR). The portfolio manager believes that with more people needing to save for their retirements, the long-term prospects for many investment managers look attractive.

Train stated recently that while he believes that competitive and regulatory pressures will result in investment manager fees falling in the future, the fact that equity markets have a tendency to rise over time will offset this. He also believes that technological change will lead to cost savings across the industry. 

Schroders shares don’t look expensive at present – on analysts’ FY2017 earnings estimates of 205p, they trade on a forward looking P/E of 16.4. This looks reasonable to me, given the fact that the company has increased its revenues by a compound annual growth rate (CAGR) of 7.4% over the last five years, and grown its dividend at an impressive CAGR of 14.5% since 1988.

However, fund management stocks often pull back during market corrections, and with that in mind, a good time to buy Schroders shares might be when markets wobble a bit, and sentiment is a little less bullish.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »